Real Estate Transaction Guide for Buying or Selling a Home

There are a number of factors that can significantly affect the transaction, even before a contract is initiated. 

-- Financing.  If you have all the money in the bank that you need to purchase the property, you will be a very attractive purchaser.  A deal where the purchaser does not seek any financing is known as a “cash deal”.  This can also mean a deal in which the purchaser will seek financing but is confident enough that she will be approved for a loan that she does not need to make the deal contingent on the financing.  Many deals, however, are contingent on financing.  This means that the contract gives the purchaser a period of time in which to make a loan application, and if the purchaser is not approved for the loan, the whole deal will terminate.  You need to know before you purchase whether you will require financing, and whether you will require a financing contingency. 

-- Coordinating Sale and Purchase.  If you’re selling a home, then you need a place to move into.  But most people need to close on the sale in order to have funds to purchase.  This is a difficult situation to be in, and you may need to arrange interim housing between your sale and your purchase.  It is sometimes possible to coordinate the sale and the purchase, but it almost always quite difficult to do, and will depend on each party’s flexibility as to timing.  It is occasionally possible to do the two closings on the same day, or on sequential days, but you should not expect it. 

It is possible to be in contract for your sale and your purchase at the same time.  But you must do this with care, and if you need the funds from the sale in order to make the purchase, then you should definitely go into contract for your sale before you sign a contract for your purchase.  This likely means listing your property for sale and entering a contract, and then searching for your new home only afterward.  It’s a very complicated dance, especially since properties that you see listed one week may be gone by the following week.  The whole process will take a lot of time and attention. 

If you need to sell in order to purchase, you may wish to enter a purchase contract that is contingent on your sale.  This is almost never possible.  There are risks involved in every transaction and the people selling to you will not want to deal with the risks of your sale to your purchasers, in addition to the risks of their own sale to you.  Financing contingencies are very common; contingencies for the sale of your home are very rare.   The only exception to this is if you are already in contract to sell, with all bank and other approvals received, and are just waiting to close – in such a case, a seller will occasionally allow the contingency.

One possibility that is somewhat more manageable (though still somewhat complex) is to arrange for a post-closing occupancy.  Under this arrangement, the seller stays on after the closing for a specified period of time, becoming a tenant of the purchaser / new owner.  This is a reasonable way to manage the transition from one home to the next, without requiring interim housing.  But again, it depends on the other party’s flexibility – not every purchaser will be agreeable to such an arrangement.  

-- Power of Attorney.  If you travel a lot, or don’t live in New York, or have any reason to believe that you might not be able to attend the closing, you can sign a power of attorney, which will allow your spouse or a member of our firm to sign on your behalf at the closing.  This is a very common procedure, and it can create a lot of useful flexibility in the logistics of the closing.    

-- International Ownership.  If you are a non-US citizen or non-US taxpayer and are purchasing property in the US, it’s important that you know about special tax rules that apply to you, which are known as FIRPTA (the Foreign Investors in Real Property Tax Act).  You should consult with a US tax accountant before you purchase; we can connect you with an appropriate advisor if you need one. 

-- Interstate Ownership.  If you are selling a property that you have owned while not making New York your primary residence, you may be obligated to pay an estimated capital-gain tax to New York State at closing.  This amount will be reconciled in your income tax filing for that calendar year (i.e., in your tax return of April 15 in the following year).  The idea is to ensure that the state will receive the tax from a party who would otherwise not file a New York State tax return.  So, if you are a New York resident and are selling your New York property to go live somewhere else, or if you live in Albany and are selling your NYC pied-a-terre, then this prepayment is not required. 

-- Closing Costs.  In the course of the transaction, you will incur various costs, from legal fees and broker commissions, to coop / condo management fees, loan processing costs, and title insurance premiums, and city and state taxes.  The costs are different for the purchaser and the seller, and are specific to the individual transaction.  You should keep track of the costs, to ensure that you have a realistic expectation of what funds are required to close your purchase, or what proceeds you will receive from your sale.  Ask each person you work with – broker, attorney, loan officer – what costs they anticipate.  Our office will provide you with our best estimate of the costs at the outset of the deal.  A lender will also provide a federally-mandated statement of closing costs, based on their estimates.  These estimates may differ, and the numbers may change over the course of the transaction.  The final numbers are calculated in the final days immediately before the closing.

-- Coop Sponsor Sales.  If you are purchasing a coop unit from the original owner or developer of the building, then you are in luck, as your transaction will be exempt from the coop application and interview requirements.  Note, however, that this exemption applies only to your purchase.  All coop policies and procedures will apply when you eventually sell the property. 

-- Affordable Housing.  Units in HFDC or other subsidized buildings may have rules and procedures that differ in substantial ways from the material presented here.  In such cases, we sill advise that you review this guide, and we will discuss the particulars of your transaction with you. 

A transaction begins when the seller accepts the purchaser’s offer.  At this point, the broker will write up a term sheet and circulate it to all the parties.

The seller’s attorney always initiates the contract.  Most attorneys will use a standard-form contract and then attach a rider of additional terms that he has developed in order to best protect his client’s interests. 

The negotiation of the contract may take anywhere from three days to three weeks, depending on a range of circumstances – substantive issues that require inquiry with the building management, or simply logistical issues of communication among the parties.  There is always pressure to negotiate and sign the contract with great speed, especially from the brokers.  But as a party to the deal, you should not feel pressured to enter a contract hastily.  It is much more important for it be done well than for it to be done fast. 

The negotiation consists mostly of emails and calls between the attorneys.  The attorneys do not necessarily check all points with the client before exchanging comments with each other.  This is normal, and it helps to keep the process moving.  The attorneys do copy the client on all the emails and formally reserve the client’s rights to review and comment on the provisions that are being negotiated. 

As the client, you may wish to review the contract documents in great detail, or not.  Most of it is very technical, so if you wish to leave it to your lawyer, that’s fine – that’s what we’re here for.  But you should check very carefully for certain things:

-- Are the parties to the deal properly identified?  If a husband and wife are buying a property, it’s not sufficient to put it in one name or the other, unless that’s the intention.  If you intend to purchase the property through a corporation, that must be stated, even (or especially) if you haven’t yet formed the corporation.  If there are multiple purchasers, who are not married to each other, then there are different legal forms of ownership that may be specified.  This is especially important if the intention is for the owners to have different percentage interests in the property. 

-- Check all the other factual information – your contact information, the identification of the property, etc.

-- If particular fixtures or other items are to be included or excluded from the transaction, it is very important that they be correctly identified in the contract.  You know these details better than the lawyers or the brokers, so you should make it your business to ensure that they contract states them correctly.  If you are purchasing, you might want the custom-built wall unit or the elaborate window drapery to stay.  If you are selling, you may want to take the chandelier, or the wall-mounted TV and speakers, with you.  Don’t take these things for granted.  Work with your broker to determine what items must be identified in this manner.

-- Each party makes formal statements of fact – “representations” – in the contract that the other party will rely on.  E.g., the seller might be asked to represent that she is the only owner of the property, and the purchaser might be asked to represent that she has not been declared bankrupt in the past seven years.  It is extremely important that you check your representations, to ensure that they are entirely true.  If there is any respect in which they are not accurate, you must inform your attorney before the contract is signed, because once the contract is signed, you will be legally responsible for the statements and may be liable for misrepresentation if any of them are inaccurate and cause a problem. 

-- If you need a financing contingency, check the contract carefully to make sure this is stated.  This is a fundamental term of the contract and cannot be changed later. 

Simultaneously with the contract negotiation, the purchaser’s attorney conducts a review of information about the building that is known informally as “due diligence”.  The review usually consists of an examination of the minutes of the board meetings and a review of the building’s recent financial statements.  Sometimes, a questionnaire is delivered to the building management or other records are reviewed, such as those of the NYC Department of Buildings.  The purchaser’s attorney will advise of any concerns about the building that may give the purchaser second thoughts about the deal. 

Occasionally, the contract is fully negotiated before the diligence is complete.  The contract is signed only after this due diligence is completed.   

Further due diligence is conducted after the contract is signed.  For a house or condominium, this will be a title search, and for a coop it will be a lien search.  In each case, the investigation is done to see whether any other parties have any legal claim to the property.  The most common instance of this is that a mortgage lender will have a lien on the property.  The seller is required to deliver clear title to the purchaser.   The contract has detailed provisions for the handling of any significant issues that may appear in the title or lien search, which may include the termination of the transaction, but this is extremely rare.